tv Key Capitol Hill Hearings CSPAN September 12, 2014 4:00pm-6:01pm EDT
dome. the second offensive in the tunnel we have to remember that we are mostly speaking about the offensive that we call the terrorist tunnels that are going all the way to the israeli territory on the other side of the line of the border, but it's part of an extensive underground network that is used or has been used for smuggling of goods and mostly weapons. ..
you probably all know that the government was quite hesitant to send its ground troops to occupy gaza because the defense capacity was talking about the fact that we did get into gaza with quite quite an extensive military composition was because of the tunnel. so we had the decision of the government. remember, something hamas is looking for, this is one of their goals to change or to impact or to influence the decision-making of the
government. we also had to impact the israelis as a whole. at first at least it was to be a big strategic surprise, even though the idf knew about the tunnel, it was not in the public discourse. apparently was not high on the agenda of ideas because our way of handling the tunnels once we got there was not very quick. and the casualties were quite high. so it was a major obstacle or major issue, major challenge for us and they didn't have any proposal on the psychology of it. focus on the south of course. they had a major impact but also in israel in general. b.c. primitive kind of system that manages to impact the population as a whole and make a
difference. so this again is something that i think might be of interest to you. as they said, is local not durational, strategic challenge but it has brought consequence. okay, so what was the israeli answer to that? i think it was the way i would say collaboration for a joint project of several components of the overall israeli military capacity. a regular one, the traditional one is of course the offensive arm, mostly air force and to an extent the ground forces. interestingly enough, this is sent in that it represents an interesting change in the israeli overall doctrine of homeland security and how we manage the president throughout.
there are other components, which are not necessarily offensive and play a major role as trying to suggest to you here by this chart at the overall contribution of the other nonoffensive element have been more significant than the offensive. as you probably know, israel traditionally is facing itself on, this is something that the military dna. bake here, you see the interesting act of defense. very, very important. i spoke about it before him and i'll say a few words in a minute. actually early warning is part of the defense. very, very meaningful. i just want to draw your attention to one important thing. our early warning system is
very, very sophisticated families directly not only towards the defense system, but the population in a way that the more than 200 cells of alarms in israel would be more so that we know in advance that a rocket has been launched now in gaza or from gaza until we reached the certain location within 70 seconds, but only a certain limited area has to be warned, which means that all the other people in this particular chime are free to do what they want to do, which is an important contribution. it is very, very significant. the last thing and went to speak about is the intelligence. intelligent work for the defense and offense is quite clear to you. i think we have reached it very,
very high capacity and most importantly, the distribution of intelligence to the troops, both through the active defense and offensive element in a very, very precise manner. if we are talking about two the third revolutions for major advances, one of them would be of course the capacity of the intelligent capacities. the other, mostly gradually incremental advance if i may say a few words about the queen of the battleground of course. it's a remarkable success. the important thing is the fusion of technology and operation here. you have to remember that this fault name started only after
the 2006 war in lebanon. there is a brand-new system developed in it very, very short period of time. the important thing here is the cooperation of a close, technological operation and collaboration between the r&d people and the operation people of the air force. i must add another thing, not because i'm in d.c., that the major part of the success was the u.s. and each one of you is paying its own tax dollars and sometimes we put our money and we put your money into the projects that are not as successful. this is an amazingly successful project. let me make one remark. the military air force was
subject to chew the introduction of the iron dome for many years. now of course it's a different story and this is really a big story. only one person died under its coverage. so the success is really fantastic and we have to remember it's automatic. it's automatic even now and we had a rocket falling and hitting areas in israel under the coverage. luckily i'm because i said before the conduct of the population, which is an important element for a civil defense because once you look for shelter, you are safe and mrs. of the whole command has to
be credited with the success, and not the other manufacturers. so there was damage. there is damage in kindergarten. there is damage in different areas that luckily unfortunately only one person died. but it was very, very impressive. we have to say again again. so we have to look for ways and means to improve the system. it's not the final stage. it has its advantages. it saves life of course. i would like to draw your attention perhaps to a notion being discussed in israel, not only is really also saves palestinian lives because if we didn't have the iron dome, the reaction of the israeli military would be different, much more severe, causing much more damage and fatalities. so it saves lives.
it provides the sense of personal security and it's amazing. they speak a little bit about resilience and how people behave when they had the coverage protection and grandpa decision-makers to do what they think is right. it's a strategic contribution to how you handle the military. of course there it disadvantages. there is no shortage of sure change weapons. the mortars come even though 10 mortars have been intercepted. there's not enough time. you understand that i am sure. it is costly of both the systems about 50,000 u.s. dollars
apiece. i'm talking about the means that it serves and because of the protection of lives, a perch raise a picture that on one side, the israeli side is no problem and everybody's happy. on the other side come at people who are suffering and of course are subject to death and fatalities. in terms of the communications team, it is an advantage. and the important thing as i said before and i want to stress this is one of the lessons we cannot be very pleased to what happened because we have an urgent need or war. both wars are the same and mostly improve systems. say a few words about that if you want to speak about the challenges. so what are the major security
lessons that one can learn from what happened from our point of view and this is my interpretation of the situation of course. i would like to hear what you think about it. we have been talking with the hybrid confrontation. but the overall density of impact was relatively mediocre. the impact was relatively mediocre. it could have been much worse and i suggest that feature will be worse. still, limited military threat poses a complex challenge, very complex challenge. mostly political, mostly political. there is no clear cut besides military victory. who one? biggest issue. like soccer games.
i mean, is there a winner? we understand those there in the freedom when you talk about hybrid wars, the question is not relevant and it's especially not relevant in the short run. it might become relevant in a perspective years as has been the case in our last presentation. if you remember when this was over in august most israelis would suggest we were not defeated and came out very, very miserable. nowadays figures later you look quite happy about it. they do not try. they have other business, et cetera, et cetera. when we speak about the issues. technologies do save lives and
mitigate damage. not only with regard to and also other offensive and defensive systems. one of them is the coverage, protective umbrella so to speak. inside urban areas there under very, very heavy antitank missile of the past makes, very sophisticated ones and the tanks -- those tanks had the cover of the system that developed in israel and it saves
lives. we enable it in a better way. but again when you think about the future to be expect dave but also hamas in the future. once you have another round, several elements that were not really apparent. number one cyberattacks. and those that have been apparently mostly not from hamas. we have some indications. i don't know but for sure, the last time the iranians were involved. the cyberissue was not a major issue in this last one, but it should be taken into consideration for sure. guided position weapons. most -- i would say all the rockets for rockets. they would not have a guided
system. next time and already in lebanon but has the luck, they have a major child of the precision weapons systems, which make a very major difference with regard to the capacities. that's what i said before. it's one thing to protect yourself when you have an old kind of a system that is self made to a large extent, the next time in the future we have to prepare ourselves again. the pillows are relatively low this time. different kinds of quantities. i don't know if you heard about that, but the numbers you hear in israel about future confrontation quantities were fighting 700 said they compare to the 100 miners we had in the last one. the range, even though it was saturday tel aviv, they can get
from the north, which is a completely different story. another day is the love and confrontation spirit speak about that again later on, but we see the confrontations become longer and longer, not necessarily to our advantage. so in the future, we might expect higher impact density and also risk to the critical infrastructure. in the last round and a most former rounds, between us and the palestinians. the critical infrastructure and this is not necessarily be the case in the future in israel has to make quite a major shift in its thinking with regard to the issue of critical infrastructure by the way we currently conduct
a major study of the electric grid in israel, facing different kinds of risk like cyberrisk, but also kinetic risk and other risks like natural risk. so, physical resistant managers will not suffice in the future. we will have to have other means to defend ourselves, which should bring us to the issue of resilience, which is the second part of my presentation. okay quiet this is going to be shorter, but for me it's more interesting because i myself -- consider myself resilient. if the family of people trying to advocate. these consider me advocating now.
what is resilience? it's not what most of you hear on the news from politicians and the media, et cetera. mostly that the oppression in israel all of the world that it is robustness. it is not. and this is the definition that i would like to share with you. it is usually shared, but not always as a controversy within the community what exactly is the right definition of resilience, but mine would be the capacity of any system. any system can be a corporation, and infrastructure, community, business ordination. any system or a system of systems with interdependent seed. so any system to quickly bounce back following a major obstruction so as to ensure the earliest recovery and return to
its basic function. into that, i would like to add one term. i'm speaking now not only about bouncing back, but in addition to data, also talking about bouncing forward. i'll say a few words about that in a minute. okay, so what is the essence of resilience following this definition? it is always part of a disaster conflict or a disruption conflict. but he don't have a deception event a kind, a major disruption to be sure. there is no meaning to the resilience in circumstances of the major disruption. we speak about different degrees or levels of destruction. number one issue here is flexibility. be flexible.
when you encounter a situation, you don't just stand there like rambo. but you are flexible enough to bend your capacity, to lay low. and then, not to be broken because the robust system, strong systems tend to be more breakable than flexible ones. remember this. this is very important. and then, the second is of course after the degradation or diminishing the functionality, which is natural to a reaction to a disruption, the system is functionally bouncing back. or bouncing forward you the real resilient systems can bounce forward or should aim to balance forward as a collective learning
process of the disruption and consequences. this is the regular conduct of the system. they have a disruption, and expected natural and normal degradation of personality. it only happens if there is no diminishing personality, there is a disruption. do not expect to what would happen. i am suggesting here several models of bouncing forward. in which she would go down and then you don't pass back at all. sometimes system collapse because they cannot bounce back. they cannot rejuvenate the
functionality. then of course there is the u-shaped in which the bouncing back usually comes back hopefully to the normal level at square one. but then the v-shaped is represented by two traits. number one, bouncing back and represent a swift coming back and arrange. and capacity building into opportunities. you have systems that are not resilient. you have systems that are media resilient. so let's see what was the situation in israel.
let me say a few words before a pasty of my verdict of the israeli resilience. what constitutes the enablers. i've been doing that for years now. it is an exclusive kind of poetry that resilience enables. i'll enables. all corporate very, very quickly. number one, you have to prepare for the eventuality of a disruption. if you don't prepare yourself, forget about resiliency. you never stand up to the challenges of the disruption. some people say prepare this first paper. the second and third and the situational awareness. we have been israel reached a very, very high degree of capacity of the elimination of
information. we have not ended our journey over there. some things have to be done when i think about that. but everyone in israel knows that at any moment what the situation is. if there is a threat, they know that there is an immediate threat or whatever. it will reach you. it will not reach either. and what is the meaning of that and what you have to do about it? very, very upgrade. it's very simple mind you because it to people, to children. the readership interest, major element in resilience building. i would like to suggest that the local leadership in the communities, especially in the south during the last summer at
this and they contributed directly to the resiliency of the people. i'm not thinking about the government because this is questionable. people say different things about that, but it's less important. i would like to suggest to you that it universally is more important than national issues. there's another thing called conviction. the conviction of different kinds. you think as a nation that whatever your country is doing a flicker ran. the more you are convinced that your country is doing the right thing, then you are more resilient. but also, ideology in general, things of that sort with all the
problems. also religious by the way. communities are more resilient than not. social activism is paramount. an active community is a resilient community. a passive community is an honorable community. but the kids in school are doing are not doing is very, very important. are they involved? what did they do? how do they act? and also the social economic status. communities with higher social economic status. there is a prosperous communities. so what is the verdict?
what i suggested this is still under discussion in israel. it is still being examined by a because we have not yet finished studying the issue. overall, i think it was quite high. both from a tactical level and on the strategic level. tactically, people manage throughout the country to manage and to maintain what we call emergency routine, which means you can behave at the same time as if you are under threat and conduct your business simultaneously. very important in a very strong indication of the resilience. return to normal behavior immediately after the event. people are looking for shelter. the wait 10 minutes. usually you wait less, even though you're not supposed to.
then you go to the movies. you look for shelter. you come back. this is resilient. in direct proximity and gaza because of the mortars in the tunnels of all the things we were talking about before hand. it was a flexible response. you remember what i said about flexibility. there was a very massive self evacuation, but there was also a rapid return home once a cease-fire back. they had 11 cease-fires. so people would just go back and forth 11 times. it's true after the fifth time they started heading. once the last one took place, 95% -- 80% of them last. 95 of them returned within two
days after the cease-fire that still holds it today. strategically, rapid bouncing back of a national scale is a minor exception as i said before. i may suggest to you that the most striking example is the smooth opening of the full year on september 1st, 3 days after they were directly hit by rocket, they were opening. it is awkward. everybody came back. which is a great indication of bouncing back. either way, if anything thing happened in 2006. you remember at that time we had two weeks after the very, very heavy fighting, worse than we had here. it ended two weeks before the
school year started. september 1st, all schools including those that were hit directly by rocket from lebanon, everything was so good. all the bed and breakfasts, which is a domestic attraction of tourism. everything was open. it was a clear manifestation. what are the lessons? i want to impress upon you the resilience is not a given state, even though they say the jewish people are more resilient than others. there is some truth to that because of different reasons. it can and should be continuously in effect. you cannot count in your resilience in any circumstance. you remember what i said about preparation. part of the preparation that is the most important part of preparation is in the round and
is more complex and challenging not surely. people are different. they should be attended to with a relevant thread and specific environment and circumstances. when you speak about resiliency, you have to direct focus on the population. different populations meet different enhancement programs. and this is my understanding, my belief is should be the strong side of resilience for counterterrorists. it's more important than a resistant mechanism because what the other side are trying to do
and this is something that is common to all terrorist organizations around the world. but they trying do is to demoralize us. if we are not demoralized and if we are showered higher high rate of resilience, they fade. they don't want to fade, but they fade. it has decreased the effect of ms. i can see from our experience in israel again and again, resilience is the story. thank you very much. [applause] >> meir, thank you for a real tour de force on the issue not only in recent days jury in terms of some of the activity, but also the context by which it needs to be examined. i also want to ask very specifically based on your definition, it would lead to believe israel didn't bounce
back yet it didn't bounce forward. i would be curious how you define what the success metrics look like. one extent or another, the iron dome and some of the attack takes basically deters adversaries to seek other type dates. this is always a cat and mouse. they come up with a new way to try to circumvent the mousetrap. but in a weird way, you will see more rudimentary types of attacks are you'll see at the high-end computer network attacks, et cetera. but do you feel -- can you feel confident enough to say you bounce forward or you think it is too early? >> i think it is too early. we are presently doing quite a major study to measure the resiliency, mostly of the people of the south because this is really the population that is interesting to vice. not only because they are the
ones who face the more severe threat, but mostly because this is another element. they constitute the weakest point in the resilience -- the national resilience depends on the resiliency of the weakest for the more challenge to link of the overall chain, right? so we have to focus our attention very coming very carefully at what is happening over there. number one, i'll tell you i wrote an article, which is i think one of the most economic in israel together with my colleague who is the one responsible for the program of the economy and national security. we brought together the economic situation in the south. and we suggested the government that nowadays the most striking
primary priority of the the government its first loss to attend to the needs of the people themselves. but the atf is not just to get them, you know, a hug, which is important, but also to introduce to them engines of growth, which brings me to this question of yours. the most important benchmark that i am going to look into eye far as the people miss the people of the south is how they grow in the next y forma. and i can tell you that they have the capacity of growth both in terms of number of product, you know, numbers of cultural event. and i want to look into it and see to what extent the number
shows would not be hired at east 150% compared to the number of shows, let's say before the operation is done. i would die, by the way, if you press me, i would say that we will be there because, neither reason because it was not the first time that the south has been challenged by hamas. it is the third time in six years. quite frequently. but we have seen the number of the population in direct proximity to god for has been growing and growing significantly. lots of people are coming back. they call it paradise. the paradise has been threatened
again. so this is my answer to you. we have a very distinct way of benchmarking, bouncing back and bouncing forward. >> did they invest in ballet companies? >> yap, yap. you know, i did a study on the anti-fata. four years of consecutive terrorist, vicious, cruel attacks against the population. during this time i could tell you exactly the number of moviegoers following disruptions, following suicide bombings increase constantly. this is a metric.
what was number -- the weapon system. >> you're going to see talking about displacing risk and ultimately you're going to force the hand of the adversary to look to either lower orders use unfortunately the efficacy that had, but when you get to the higher tax companies talk about capability leap that is not insignificant amount vcs bring pregnant proxies since they found as in everything else. if you had to project forward, where do you see that going on and who is looking in the background taking advantage of the situation. >> if they listen to me, they
have proven themselves to be quite sophisticated. but it's not under estimate the capacities. they would go both ways. low-end and high-end. in other words, low, more tunnels, more mortars, more and not sophisticated weapons. at the same time, also the high-end. you know, israel is on one hand an excellent target for cyberattacks and cyberwarfare because all of the assistant are based on the systems, digital systems. on the other hand, we are quite advanced in protecting their systems. but i do think cyberis much more prevalent, much more noticeable on the next one. and the weapons with high
precision because it is a very, very important element. it's definitely a game changer because i said here that i wanted to raise it again. i am today somewhat more concerned about the challenge to the infrastructure to an im to the challenge of the civilian population. of course here you are talking about people that can be killed, et cetera, et cetera, so don't take me literally. but the idea is we are not as ready with regard to the protection for the resilience of our infrastructure, meaning its capacity to bounce back, okay, you have to remember the infrastructure is more difficult to enhance the flexibility of infrastructure than it is to do with the flexibility of human beings. >> i might note i recently chaired a big grade security
study here and i think you are right to focus. not all critical infrastructures are equal. some more critical than others and clearly given the interdependency of other systems that is at the very heart of the issues. and i might know when you look at the cyberthreat to my recent hosted other colleagues, but it's not on the computer network attack and computer network exploit, but how cybercould be an enabler to kinetic attacks and to me that is one of the dilemmas here since attribution is still not 100% and the ability to work with proxies is a bit of a challenge. you touched on the government interbrand and no surprise they been investing very heavily. they've been hiding it, advertising it. and i think something that will be a factor in any form of
conflicts going forward significantly there. let me flip it the other way around. the united states, a lot of attention understandably on the threat posed by isis in iraq and syria. i want to talk to a particular point you raised and that is the role of social media and its very definition, terrorist to undermine government policies, institutions, people, but it's a psychological weapon on top of everything else that may be. you were discussing that i think in a very good way in terms of your ability to inform your population. he talked about the alarms and sirens. few had the ability to localize that so not everyone has to find shelter at the same time, which i think is important. not only do you have alarms, do
you have social media. i think that has huge implications vis-à-vis disaster preparedness and other needs domestically. but swept up in the adversary perspective. their use of social media. if you look at isis, it seems obsessed with its image in the south the equivalent of really bad people with some of the most grotesque and a poor and types of video. but they are using it for three purposes. to recruit and radicalize westerners. dear using it to try and instill fear and target audiences. they are trying to impact and obviously to facilitate their own tradecraft in the battlefield and elsewhere. the social media didn't play in so much directly from an hamas gave an operation protective badge. what are you thinking about going forward?
>> it's very interesting what you're saying because you are afraid. we have not yet completed our study on the usage of social media by hamas. what i am going to say right now is nathan. so please bear with me. bear with me because i hate to speak about things that are not truly confident about. but i was recently exposed to the hamas social media to because they were very active. let me give them a very low, you know, grade and the performance in terms of the content and visualization because if you get a tax or you get a youtube, which is how shall i say it, and i'll team, it is great task. on the contrary. so in this respect, they still have a long way to go.
the intention is there. the action is better. quite impressive in terms of numbers and consistency. but in terms achievements, i would be very happy if i were there. so there is another line for them. it's not the case with regard to their own people. i want to impress upon you, we are looking constantly at the question to what extent the people in gaza are alienated by what is happening. and you know, we want them actually to understand. hamas is actually taking very heavy damage on them. well, that is not the situation. and even if you distract the element of fear because it is a vicious readership and they then
have to resort to massive, what was said, executing the people in the streets, it that are, et cetera after our attempt to kill some of their guys, i would say that if there worked today three elections in gaza, home -- hamas would have the upper hand. i am talking about, i mean, a set of elections. so what i am suggesting is there propagandizing gives working. this is what is more important to them. >> and i recently did an interview where i compared it to spammers. you really only need a few people clicking. so when you look every grittiness radicalizing, you don't need 100% success rate.
he made the small success rate, which of course is to the adversary. i want to open to the audience. we have a little time. he carried so much territory and i think in addition to providing specificity in terms of where we are, i think the context is important because we need to be advocating. at the end of the day, it is the ability to bounce back, bounce forward and that includes a sociopsychological dimension in the engineering to the system and if they are built on quicksand, we've got problems. please identify yourself before you ask. [inaudible] >> my craft, i've been working with the resilience of the group here. you seem to focus more on the after action of events in back, but a lot of us consider the
important part of resiliency is dealing with the ongoing actuation can say whether a major hurricane or terrorist attack. part of this is you suggest involves preparations. to what extent have you been focusing on making sure the citizens have adequate supplies of food, water, medical supplies, et cetera, especially in the south and elsewhere. and also, there is a question that comes up of the psychology. you mentioned yourself evacuation. maybe that is part of the evacuation -- resiliency when they come back. but hamas bircher he says of his psychological state to read. a good part is been closed down, the economy being hurt. how do you do with these may be contradictory goals? you can't force people to stay in place. how do you resolve to encourage
them? >> limbers phimosis to the second question because the first one is interesting that a very theoretic thing. i will say a few words about that, but if i may come to speak a little bit about the second question that this whole issue of evacuation. it is a controversial issue all over the place and also that israel because they are people who think in israel, not hamas the way he tries to get some benefits, sort of propaganda. some people say that if you leave the state you are afraid and if you're afraid you showed that you are afraid that's not good for the country. i do not buy that personally. i think that people know exactly what to do. as much credit as you want to get them to coming back and
giving the credit of deciding what is good for them and their kids. this notion that the current jury should tell people what to do in terms of team share in the approach and i don't accept it with all due respect. on the contrary, okay, the fact that people were waiting to return to the damaged, threatened homes, and they were waiting for the moment to come back. this is for me hair with them. and i don't judge them for leaving. i respect them for it. of course there are others there are others as they wait a minute, et cetera, et cetera i'm especially sensitive sensitive issue because of what is happening, sidling and the narrative is a big thing. there cannot be settlers in the
west bank, and better, better. it's a big thing in israel. i'm sure that 50 years ago most of the people of israel but say howard's run away. but if a country now it is a much more open country, society and people have to be responsible for themselves. my point is if you are responsible to your own life come you take your own life and throughout your own judgment, perspective and responsibility, you are more resilient. if you wait for us to tell you what to do, where to go, this whole concept of evacuation i prefer the notion of self evacuation to the notion of the planning of organized evacuations. and we have planned for organized evacuation in israel, even a title ii a period you
probably even have an acronym for that. >> i've got acronyms for everything. >> exactly. so it was not enforced. you probably know about this plans. how to take and where to host them, how to provide them with food here people know how to do it fast. and again, it is a free country. free country is freedom to its people. so as i said, think i wanted to be very clear about my position. i hope i was. >> one thing i would note that was very special needs community, the elderly, the hospitals, those struggling getting food on the table every day. >> those who cannot be responsible for them, for themselves. again, they are families.
the people with special needs in this very, very important issue. you are absolutely right. and here, government involvement is very, very important. when you speak about the public at large, freedom, that's what it is. >> we have a question here and a questionnaire. >> first of all, thank you for joining us this morning. i am the senior here at the elliott school, vice president of gtb class counsel and acting politically for israel. you mentioned in the future will be worse. my question to you is what are the steps israel is taking now or that it will take to counter the greater growing threat and how d.c. the united states playing a larger role within that context? >> well, it is so wonderful you are asking that because we spoke before and i asked you to las vegas kind of question.
but i see for the first time. so that's it. either way, i am going to speak at the western institute at 2:00. i'm talking about politics. so i am prepared for your question. what i'm going to do, i'm going to make a promo. i think that israel is not gaining from the paradigm. it's not good for us. even though we can manage, we can manage that we have managed so far, but it's not healthy for us. and i'm speaking very personally here and i present to anybody
but myself. it's time to s. to exert ourselves from the silo. as i said before, the rounds are becoming more frequent and longer. not very good for us. let's face it. we are not in the business of fighting all the time. where the business of enhancing our economy and society. it's like any other country. the fact that we have to go back to fighting again and again, developing and being very proud. so forgive me. we have a lot of business on our agenda. so again, my thinking is that it's time to look for new horizons. and i'm quoting the prime minister. if he stands up to what it says that there are no new for my
sins, we should exhaust those new horizons and look for solutions for the palestinian problem. this can be done. i have friends in this room who are not so sure as i am. many do not think that i'm right, but i am hopeful i think it's possible now saying it's not good for us to keep up with fighting. and then, all those issues of more cyberwill be less important. it will not be obsolete unfortunately. it will take a long time before it becomes obsolete. it will not be a significant it as it is now. >> i would also argue if you're moving toward success, this has become more significant because it reckons other sites as well, right? i mean come you can't do without demilitarizing, can you, the hamas? >> all of our arrangements with the arabs throughout the years have been based on
demilitarization. locals night has been demilitarized. this theory is agree to their side the palestinian and the west bank so the notion of demilitarization is not a new thing. palestinians -- who would have believed that not to be spoken to, et cetera, et cetera would be agreed to a demilitarized. they've agreed to be demilitarized. hamas would also agree because they have other issues. one of the other issues is the train to type guys that are chasing them from behind. so it's not just the saudi speaking about collaborating or recognizing the significance of israel. also hamas. the entire hamas would take some time, et cetera, et cetera. but if you ask me, i would look for the new horizon and make it
happen. >> we have got time for two very good questions. please identify yourself. african they can put questions. >> fellow at the u.s. chamber of commerce foundation. thank you for being here. fantastic presentation. one of the day .2 offered as it is more important to have resilient dealership on a local level in a national level. how are you developing that talent so that can continue to be reinforced going forward? ..
later on he was told it was all done. he came to the governor on record and said i was not pleased with your conduct. he said that in harsh words by the way, harsher than i can use right now. we are on tv. thanks for reminding me. >> it sounds like there's a thing called the federalist system. >> this is the essence of democracy. >> there is a difference between the command control and art of persuasion and this is one of the differences. you've got the last word. please identify yourself. >> [inaudible] thank you for the presentation.
can you remember earlier conflicts when the mayor of tel aviv for example called under fire for example? you could see the change in the resiliency of the local leadership. what we did in israel different come up with was the main reason that made this change happened because there was no doubt that it was even longer than our conflict. it was different. >> okay.
tough question. number one if you think i'm pleased i didn't send the right message. we were quite resilient. it was okay that i mentioned the impact with the moderate measure i don't know what has been the rate of the resiliency if it were the rate of density the home front command put in that scenario conviction. number one we had to work on a
project and ladies and gentlemen, it is not what we do resiliency is not sufficient. it's not consistent enough or overarching enough. it's not calibrated enough. it's true that we are doing fine until we are making progress but i say to those that are willing to listen to me in israel progress is not a virtue. it depends where you start from and if you start from what will happen in 2006, progress doesn't press me at all. we have made some great progress. very tangible like the iron dome and in our resiliency.
we've made some interesting process in terms of the discourse between the home front end of the population in general in some very major way. but i will give you an example and this will be the end. there is no clarity to the question of who is responsible for what i call the front. we have to realize what we call home front is the civilian friends because they have two fronts, the military front which is nicely orchestrated. we have the clarity of the hierarchy, but when we come to the issues of the severe front which is much more complex, nobody knows who is responsible for what. we don't have this whole issue
of accountability and of authority responsibility in israel. and excuse me for using french primitive, it's primitive. and we cannot bring ourselves to structure it in accordance with any politics it is a major obstacle. i don't want to end with a grim prospect, but we have several major issues that have to be dealt with. you know, very basic ones. number one, who is responsible for the population, who decides whether to open the schools september 1 or not?
those guys in the military? i don't think so. the mayor, the ministry of education? it isn't structured. nobody knows. two days, 48 hours before the first class of this year was over and it wasn't clear whether we were going to have an open end of the year. it's a major macroeconomic question. so what's happening here and we have others. we spoke about this. god forbid that we need the government to take care of this. people know how to.
it's one issue. i had more but i don't have time. you have to understand it is an ongoing business. we have not finished the journey. >> i might argue resilience is not an end state. >> on that point you have proven yet again to be the soldier scholar, diplomat, and i just want to underscore the future are risings in everyone's best interest and i really do hope that you're right. i've often been told a pessimist is an optimist with experience. >> thank you. >> thanks for coming. plus the
>> i put in a request and talked with her sometime ago but she's getting ready to do her book tour and she said i don't what that is going to be like and how it is going to transpire. i would really like to do it, can you just give me some time to figure out what my schedule is going to be like? i said sure. then i saw bill in california at a health care event in california and i saw bill clinton there.
of course we start commiserating with this and that and i remember signing some of the books it was just the two of us so i told him that i had invited hillary to come speak at my steak fry. he turned to walk away and i said you should come, too. you want to those of us? >> you are both good friends of ruth and mine. we've been friends all these years. i said i would love it. that would be great. think about that. he said i will. and it's a great honor to have them both. they've been good friends of ours for all these years. the bill and hillary have provided a great leadership for the country in the past and the respective ways. i served on the committee in the senate under ted kennedy with hillary clinton all the time she was in the senate so we had a great working relationship in the senate. i think she did an outstanding job as the secretary of state.
in fact as i traveled round the world the last few years, it has just been amazing how the stature that hillary clinton has among women and girls all over the globe she has lit a fire among the women and girls in countries around the world is that they are just holding very high esteem we are excited to announce its launch week for the 11th annual student came documentary contest. $100,000 in cash prizes will be awarded this year to middle and high school contest winners. the theme is the broadest effort it's the three branches and you. we would like you to tell a story that demonstrates how a
policy, law or action by the executive legislative or judicial branches of the federal government has affected you and your life or your community. the competition is open to students grades six through 12 and students may work alone or groups of up to three. contestants were asked to produce a documentary supporting their chosen topic and to include some c-span programming. about $100,000 of cash prizes will go to 150 students and the 53 teachers and the grand prize winner with the best overall entry will win $5,000. the entry is january 20, 2015 and winners will be announced in march. visit www. student cam.com for the three branches and you. >> treasury secretary jack lew talks about potential actions his department could take to bolster the tax accountability
and make the u.s. a more attractive place to invest. following his remarks this week at the tax policy center a panel of tax law expert examined possible congressional legislation to address the increasing rate of corporate inversion. this is just under two hours. >> good morning everyone. i am privileged to be the president of the urban institute and have the opportunity for welcome everyone here including those of you standing in the back for joining us and a special welcome of course to the guest of honor. it's an enormous honor for us to have you here. also let me welcome the audience while ching now or later for those of you watching live lets me indicate that you are welcome to join us at email@example.com.
we have been looking at those are the panel that will speak after the secretary but at that point, we can talk about your questions and comments on the entire program and if you are following the discussion online or in person, let me encourage you to tag your social media post with live at urban. today's program is how the tax business. the business tax reform and some current. the business income is broken but but too little agreement on the solution. both say we should start by lowering the rate and eliminating preferences as if that were it solves the simple task but there's also an even bigger challenge in the international. specifically, a major concern in the current tax system treats cross-border income corporations
these problems have grown as the companies have become globalized and it is the share of return that come from the intangible capital as increased. this morning we will hear from secretary lew who will start us off with a broad context and speak on the importance of the tax reforms and to describe the administration's goal to level the playing field and make the united states a more attractive place to invest. the secretary doesn't have time this morning to take questions but a terrific panel will take questions later and we can reflect on his remarks. specifically, i will lead a discussion on one manifestation of the challenges we face, corporate inversion and discuss whether there is any way in which this discussion can help us drive to words a solution to the larger issue. we hope to add some clarity to the public debate about what that transactions are and how they reflect the larger challenges in the international
business. and we have to clarify the alternative path forward. passage by congress of comprehensive tax reform does not seem imminent, so what are the alternatives? does targeted legislation seem more likely and how would it work? in particular, we want to explore the questions raised by a provocative article by one of the panelists about whether the treasury should use regulatory authority to reduce the incentive for u.s. corporations. we hope the discussion will shed light on differing views of what authority the treasury does or does not have under the current law and what might be to use this authority, what impact could they have on the business planning practices, what consequence is that such action have the prognosis of reaching the consensus come on the business tax reform and how might the use of this before you stick in the larger debate about the appropriate use of the executive action. today's discussion will fit in the mission of the urban institute and our tax policy
center a joint venture with our partners. that mission is to elevate the debate so when the clarity is lacking and evidence and analysts can help shape better policy we try to be there. even our own experts don't always agree on the policy implications in the path forward. as a think tank, without our own agenda that is something that we embrace. a healthy debate can contribute to better policy results when viewed with even differing views are grounded in evidence and analysis. the urban brookings tax policy center led by the codirectors bill gale have produced a wealth of resources on the topic of the business reform and the inversion. copies are outside the room for you to collect and you can find them on the tax policy website, tax policy center.org. we've long held an enviable position as a trustable source
on tax policy, grounded in the work of the well-regarded model and among the different tax policy. today it's on the corporate taxes as well. i draw your attention to the eric and aei alan makes the call for fundamental structural reform. it's my pleasure to introduce the secretary having served in this administration is the state department and omb and in the positions in earlier administrations as well. even the seasoned cabinet such as himself could have anticipated the length of the international issues that he would find a waiting him in treasury from developing new thing shines emerging from the crisis in ukraine to the ongoing
battles of terrorism, international trade and other challenges. in the midst of these however, the secretary has remained focused on the us economy, and moving forward on the administration's domestic parodies like the tax reform. those priorities were laid out in february, 2012 when the white house and the treasury announced the president's framework for business tax reform. the tax reform outlined provided the description of the problems facing the businesses in the united states both corporate and noncorporate and also offered a framework that would include over tax rates come a broad tax base and the less susceptible to manipulation and significant simplification in the revenue neutral tax change. there is a significant bipartisan interest in the business reform and the secretary's commitment to advancing the reform holds that glimmer of hope the treasury highlighted two years ago that
might eventually be addressed. perhaps today's discussion helped shine a light on this importance of moving that debate forward. on a personal note, let me just add that i was privileged to work with the secretary in the earlier administration as was a member of our panelists. the secretary has someone who can think about the complex challenges of the job entails on many different levels and gets never forget fundamentally what it is all about. he has a remarkable ability deep in a conversation with her it to be about global capital flows, international trade etc. revenue or complex corporate structures to retain the focus on the shareholders, the employees come , the small firms on main street and ultimately the families and individuals who make up our economy. he balances this mission with a deeply pragmatic approach to problems and we are lucky to
have him here today at the urban institute. please join me in welcoming secretary jack lew. [applause] >> thank you sarah for that introduction and the urban institute for having me here this morning. for nearly half a century, the urban institute has applied rigorous research and analysis to help advance our understanding of the public policy challenges facing the nation. and we will keep looking to your work and the work of the tax policy center as we continue to move forward and make progress that we have with the american people. let me start by talking about the economy that continues to strengthen thanks to the recently incipient american people. unique capacity to innovate with the bold effect of policies put in place by the president to bolster a response to the financial crisis and lay the foundation for the future. gdp posted a robust game in the second quarter of this year on and our economy is now 6.6%
larger than when the recession began in 2007. private-sector economists expect this to continue its healthy growth in the second half of the year and through the end of 2015. in addition the private sector created a 10 million new jobs over the past 54 months. that's the longest stretch in the nations history. the auto industry is thriving in the manufacturing is rebounding into the housing market is recovering. we sell more goods around the world than ever before. we produce more oil in home and we are now the world's leading producer of petroleum and natural gas. household wealth is at an all-time high. the affordable care act has placed millions of americans no longer have to agree that an illness will force them into bankruptcy and health care have risen at the lowest rate in 50 years. financial reform is not only made our financial system stronger and more resilient but consumers now have a watchdog in place that is looking out just
for them and over the last four years the finances have improved markedly and it's been cut by more than half. we have more work to do to keep the progress going to make sure the benefits are shared and the president corporate strategies to help grow the economy to reduce unemployment even more. one important strategy is the tax reform. it's clear that the business tax code has become more and more distorted. the united states is in an attractive place to do business in spite of the tax code and that's something we know how to fix. the united states is the highest corporate tax rate in the world because of inefficiencies and special interest loopholes some businesses pay the full rate and others pay nothing at all. more than two years ago the president put forward a framework for the the framework for the business reform to level the playing field and he's consistently called on congress to get these done. we want to eliminate the carpets of the tax expenditures, broaden
the base and establish the top rate of 28%. this would simplify the code and make the united states and even more attractive place to invest. when we reformed the broken tax code, there will be one timed transitions a thing. the plan would use the savings to invest in america. we want to make critical repairs and updates to the country's roads, bridges, tunnels and airports. by making the job creating investments and nations infrastructure, we can propel our economy forward today and far into the future. the truth is the need for infrastructure has never been greater and tomorrow that transportation secretary fox and i will host a summit with investors, business leaders and government officials to help increase private sector investment in infrastructure and expand public-private partnerships so that we can begin to clear a backlog of what is needed to keep our economy competitive in the future. the guiding principle of the framework for the business tax reform is to create an environment where the business decisions are made for the
business reasons not for tax purposes. both democrats and republicans agree that the ultimate goal of reform should be to increase america's competitiveness and the path to getting there is to close unfair loopholes which are not even helping our economy. earlier this year, the chairman and i tax reform proposal in the key areas of overlaps the business tax plan including using one-time savings from tax reform to invest in infrastructure. the administration is committed to completing the business tax reform and the strong support across the business community for getting this done. still it is going to take more time for the congress and the administration to complete the tax reform and while that happens there is one loophole that should be shut down immediately. right now our tax system rewards those corporations when they buy the foreign companies and then declare that they are overseas. the practice of corporations acquiring the business and then
switching to citizenship outside the citizenship outside of the united states is known as androgen. in the case of the deals with an increasing number of corporations on the verge of completing such mergers and many more across a variety of industries and works. make no mistake there is nothing wrong with the cross-border mergers. our country is better off than the company that can invest overseas and when the foreign investment flows into the united states but the transactions should be driven by the genuine strategies and economic efficiencies. the problem is that with many inversions, the change in residence is done primarily for tax purposes, and the new entity is for all intensive purposes effectively just changing their address. the practice allows the corporation to avoid the subject response abilities while continuing to benefit from everything that makes america the best place in the world to do business. our rule of law and intellectual property rights can support for research and development,
universities for innovative entrepreneurial culture and skilled workforce. this may be legal but it's wrong and are lives should change. by effectively renouncing their citizenship that remaining here, these companies are eroding america's corporate tax base. that means all other taxpayers including the small small business is a hard-working americans will have to shoulder more of the responsibility of maintaining core public functions than everyone particularly the u.s. businesses depend on. we are talking about a national defense and education, medical research, court, and the vital infrastructure such as roads, bridges and airports. if we allow the incentives to pursue the deals to remain in place, we run the risk of undoing the progress that we've made to reduce the federal budget deficit. the best way to address the inversion is through the comprehensive business tax reform that includes specific anti-diversion provisions. these provisions will need to be in place even after we move to moved to reform the business tax
system because there will always be countries with rates lower than ours and where the corporations can establish rather than for tax purposes. at the same time, we cannot wait to complete the business at reform before taking action to fix this problem. that's why the president laid out a legislative plan in the budget to end the incentives that encourage the inversions. under his proposal, the company would not be able to claim for in residence if it is still managing to control than the united states, does a significant amount of its business here and it does not do a significant amount of its business in the country that it claims as its new home. on top of that, to make sure the company is truly a foreign-based entity, the original shareholders of the foreign firm, they would now have to own at least 50% of the merged company rather be only 20% which is the correct legal standard. now i've been urging congress to move forward to rain on these transactions. and members of congress have taken action to come at the problem including the chairman
widened to hezbollah leader on this issue and senator levin and congressman levin and van hollen who forward the strong legislation to incorporate the president's plan. lawmakers on both sides of the aisle have expressed their dissatisfaction with the recent state of versions, so the proposals currently circulating on the hill should have bipartisan support. keep in mind it was president george w. bush who signed the first anti-diversion legislation into law in 2004 to keep the companies from setting up residence is in places like the cayman islands strictly for tax purposes and this bipartisan legislation was championed by the senior republicans in congress. moreover, when the 2004 law established the current anti-diversion regime, it also worked which proactively in other words, the legislation was signed into law in october of 2004 but have an effective date of march, 2003. and this is a critical link. the same principle as true
today. to prevent a rush of the corporate aversion to get in under the light year before the change in the law, the legislature should work retroactively apply to any deal after the early may of this year. i want to emphasize once again how important it is for congress to solve this problem. it's imperative that the lawmakers get this done. still, the administration is clear eyed about the policy debate the possibility congress may not move to respond to the growing wave of inversions. given that, the treasury department is completing an evaluation of what we can do to make these deals less economically appealing. and the plan to make a decision in the very near future. any action we take will have a strong legal and policy basis but will not be a substitute for meaningful legislation. it can only affect part of the economics. only a change in the law can shut the door and only tax reform can solve the problem in our tax code to lead to
inversion. in closing let me thank everyone for being here. tax policy has serious consequences and highlights the choices that we face as a nation. that is whether we have the resources to make the investments that will make our economy more competitive and whether we make it possible for the the businesses businesses to grow, innovate and hire, and whether we make sure that everyone has a fair shot at success. getting this done will require tough decisions. but if we move in the right direction and i'm confident that we i am confident that we can make enormous progress. thank you very much. [applause] >> as we say thank you and express our appreciation to the secretary, let me encourage or panelists to come on out and take your seat.
[inaudible conversations] -- looking at what is possible in the scope of the current cigarette use and as we would like with this amazing panel now what that might mean as well as what the consequences of some of those actions might be for the broad questions the secretary raised. let me take a moment to introduce the participants. ideally each of you have have there biography is an detail. i won't spend much time but let me give you a quick idea of who we have here. to my right is john, vice
president responsible for ge global planning and science operation. the international magazine tax business labeled him the most influential person in the tax world no offense to anyone else in the room. [laughter] >> "the new york times" once called the tax department best tax law firm in america. but he emphasized john is here today as an expert in the field and is not talking on behalf of his firm were any other firm. that applies to all of the panelists here who are not only speaking for their employer but also not for any other affiliation that all of them may have. they are speaking on their own views alone. next to john we have to professor of practice at harvard law school. he is one of the countries leading the tax authorities serving at the highest level of government and academia as well.
he'd recently shook up the world with his article mr. secretary take the juice out and we will talk more about taking the juice out. to his right is sally from a visiting professor at the law school. she is a leading expert on the executive branch authority having advised three presidents on the use of executive power and testifying before congress seven times. i also had the privilege to have sally as a mentor and advisor when i was in the white house white house a decade and a half ago and i can tell you that i am grateful for the experience. finally, we have the urban institute tax policy center senior fellow steve rosenthal. before joining the steve spent 25 years practicing tax law in washington, d.c. and also had a stint developing and directing tax legislation in the committee of taxation. we are lucky to have such
experience and what i am going to do this pose some questions to the speakers to try to get them to pose some questions and raise conversations with each other. and then we will bring all of you and after that. but the again encourage you if you are online to make your question to firstname.lastname@example.org and social media hash tag #live@urban. you may have picked this up on your chair i called a simple description of what we are talking about. and remember, while we have some of the leading experts. >> i can try that first let me say thank you for your kind introduction and note that the nyu magazine i am and i love my
of nyu with a very heavy fund-raising city cut with a substantial could have a substantial grain of salt. so i want to put the issue of the so-called inversions into perspective and i wanted to do that by quoting simon testimony before the house ways and means committee. i would like to start with that. so here is the quote. my name is john and i'm the vice president of the chief tax counselor. the merger of chrysler was a marriage of the two global manufacturing companies. one was the cooperation of north america and the other headquartered operations around the world. the u.s. tax system had a global companies at a decisive disadvantage that became a major concern when the time came to choose that the new company should be or a foreign company. because of the disadvantage, the management chose a company organized under the law.
the testimony goes on to explain that the principal reason the management chose to form a company was that it had been formed in the united states all of the new income would have been subject under the u.s. worldwide system to the u.s. 35% corporate rate regardless of where it was earned if it was formed in germany and they have a territorial system and the only tax imposed on the new company's business by germany with the german tax. the testimony was given in 1997, 15 years ago. more than 15 years ago. and i wanted to call to your attention to show that there is nothing new about the best companies being acquired by the companies and their foreign jurisdictions where the territorial system so that the new companies worldwide income wouldn't be subject to the u.s. tax. it's not an isolated event.
the data shows in the cross-border mergers, the companies based in the territorial systems are much more likely to be the acquired in the target. the data shows from the last 22 years to 1980, 1999 sorry, to 2012, 57% of the cross-border acquisitions by dollar volume were the foreign companies acquiring u.s. companies and only 43% of the u.s. companies that acquired foreign companies. in the academic literature supports this. there is a recent study showing that in japan, japan has changed its system from a worldwide system to a territorial system and the study concludes that in the cross-border mergers after some of the acquired version 31% more transactions than there were before and the study also estimates that if the u.s. were to adopt the territorial system,
the u.s. companies would be required and 17% more of the transactions are, cross-border transactions. >> none of it is surprising in the most junior. you know that if you are structuring in the merger you should do whatever you can, whatever is possible to make sure that the earth to get coherent requires the company to avoid having the entire worldwide income, in the u.s. tax net and subject to the 35% rate in the world. i teach in international tax class at yale and often on my exams i get a question. i have a merger of the company and i ask them which one should be fired and the ones that conclude which would be the most tax efficient way the ones that conclude that companies should acquire generally don't do very
well. [laughter] having said that, they were very smart and so far none of them have got an answer to the question wrong. while the foreign acquisition there's clearly been a dramatic increase on the size and number of the transactions recently and the trend is likely to continue and accelerate at least until the u.s. performs the international tax system more in line with the rest of the world. so what's going on. how can we explain the recent wave of the acquisition? >> they are driving this activity and maybe a third factor as well. the first factor is virtually every major developed country in the world has dramatically reformed its tax system to make it more business friendly. they've done so with the explicit goal of attracting
headquarters and foreign investments and jobs. the uk recently abandoned the worldwide system for the territorial system and reduce the corporate tax rate to 21% and adopted a regime income of only 20% and the uk government was unabashedly explicit as to why it was making these changes. in announcing the changes, and i quote, the government said the government wants to send out the signal loud and clear that britain is open for business and then the government went on to say we want the tax system to be considered an asset, not a liability. and maintaining the u.s. companies because they had begun to leave the uk and attracting new ones to set up their business. some do decry the fact that the companies are designing their systems to attract investments and jobs and strengthen their domestic economies and i suppose
it is if you find the goal is to restrict as much as possible by attaching the mobile. something that's difficult to do in today's economy with capital flows across borders like liquid mercury. but one of the countries don't view the rate and try to extract as much revenue as possible? something they might consider to be a fools errand. but instead, what if they think that it's already been mac summarized? to make one more comment if you could. >> i have a lot more to say. [laughter] >> this is my fact. whatever you think of this you have to take the world the way that it is and not the way that you want it to be.
so the first factor is that the u.s. has many more companies to choose from and to which to relocate their headquarters. i'm sorry, the countries with stable government, rule of law, major universities and research centers, great greater resources, tourist infrastructure. the world is open for the relocation and aggressively trying to quote the u.s. firms. the second major factor is the percentage of income in the u.s. companies has increased dramatically. the 23% of the profits and today more than half so the stakes are higher. u.s. companies have more to gain and a lot more to lose by
staying in the united states and this is a trend that will continue because 95% of the worlds population and a 72% of the purchasing power so all of the growth is good to come from the u.s. so it is a combination of the two factors. many more places to move together with an increasing portion there are secular drivers that are going to keep the trend. one more possibility pushing the tax reform it may be that they've lost hope and they are going to decide to take matters into their own hands by relocating to a country where they've already reformed their
tax. that's one possibility. even more importantly, some heavy glimpse of what the u.s. tax reform might look like, perhaps it is will affect their international operations and under every proposal so far most of them the u.s. system would still be far from being aligned with the international systems of these companies a -- it's a lot better. he factor tax reform it will be in a different country so we might as well get out of dodge now before the new sheriff comes to town. what is important about this is when noted it doesn't align our system with the rest of the world and versions they are going to continue. and i don't think we will talk more about this later. and he had a version activity can be effective in a global economy where the capital is titled.
>> steve, can i ask you i promise we are coming back to the larger question that you want to take a crack at the first description and if he would offer your perspective on whether this is a symptom of a larger set of problems and if it is troubling or not and if it is something that we should be tackling? >> can we have a diagram to put on the screen? the first question you're asking is what is an ad version and for the purpose of today's discussion i think that we can keep it very simple. entirely, for my students that might be watching i'm not going to signal the answer for my exam question. [laughter]
>> what happens with respect to the version is if you look at the diagram there is a u.s.. group, there is a tax lawyer called the foreign target and he acquired a foreign target. in this case, in the recent deals and a very large deals, special efforts are made to try to have the acquisition vehicle be the authority vehicle so that a number of tax benefits can be achieved. since 2004, all of these have solved the big code involved in the acquisition of a substantive art and business. one or two. but these are what you might think of as real deals. they involve something a quarter of the size so the question is what's wrong with that. and i think as the secretary
said before how there's nothing wrong with that business deal or acquisition. where the tax policy arises. so the question of what has been displayed is the extent to which the objective of the deals is thought to have a simple business transaction, but to take a u.s. company out of the united states. and so, that is the careful line the treasury is working on. one of the things that can and should be done as i put in my article, take the jews side of the tax diversions but i don't think that anyone is saying. so what is troubling about the tax diversions? they are troubling to the extent that they are tax motivators and
the result of criminal loss of the income tax base. they are essentially three potential tax benefits of substantial amount through combining with a smaller company which is what the deals have been. it gives you the ability to avoid some restrictions turning into a foreign parent. what are the benefits from doing that. first, it is the ability to serve excessive intercompany debt into the u.s. company to reduce the u.s. tax base with interest deduction. we can use intangibles for the sake of simplicity and large interest deductions. in 2007, the treasury study found that for the study that all of the aversions before 2004, the u.s. subsidiaries that were owned by the converted companies have higher levels of debt than other controlled u.s.
companies added that the earthly rules that limited interest deductions spawned the business proposals that have been in the budget for years to change the earnings stripping rules. the second benefit is a little more complicated. if you look at the screen, the foreign subsidiary that controls the foreign corporation, all of the companies do not have to pay tax until they repatriate the dividend. so they get steady for the u.s. tax on their foreign earnings. as long as they are under a u.s. parent, they cannot be used for the benefit of the u.s. parent led back to the u.s.. so they can pay dividends or stock buyback without it being treated as a dividend. the ability to use the offshore earnings which the united states tax has been the third, it
benefits the shareholders without having to pay u.s. tax is the second major benefit of these transactions. now, it's not quite as simple as what has been discussed in the past, that we are not going to get into the leaves on the different issues that arise. i will come back later in our discussion. there are some tools that exist in the current regulations that could stop some of the simple queue service is offshore earnings. but the reason i think regulation is needed is because the tools are needed for the post planning technique that could run even not rule. what is the third benefit? the third benefit is to be able to earn foreign income that is entirely outside of the u.s. tax net and as a result, to encourage even more shifting of income of investor funding in the united states. just wanted to note that my article, where i was talking
about regulatory as opposed to statutory changes, i only suggested taking on the first two issues. thinking about the third issue has limited itself on the tax are puzzled with respect to the first two issues i think there is a regulatory step that would reduce the tax benefits that are indeed consistent with each of the major potential tax reform proposals for reasons we can talk about as we go a long. is >> that's very helpful, and i going to give everyone a moment before we move on. we are going to come back, i promise, to a conversation about whether or not taking on the tax advantages makes sense. did anyone else want to add to the description of the transaction itself and what the tax benefits are that people are pursuing and these are going to be 62nd limited so that we can get to the next.
does anyone want to add anything to the description? >> i agree with what steve said that i would emphasize the second of tax advantages bringing capital back to the united states and cash back to the united states and these transactions are being described as capital flowing from. so i do think the advantages are potentially the tax base with interest in the same way other foreign companies are going and also to bring cash back to the united states. >> we are going to spend a couple minutes now talking about the tools if you describe those npr going to take for a moment the assumption that the treasury secretary laid on the table which is it is in the interest of the united states to try to stand the transactions and when
we come back and question but for the moment if you assume that what started out with tools to treasury might have and give a backdrop to the conversation i'm going to turn to sally first to talk more generally that the executive agency has and what the statutes have been on the book at a time and practices or questions arise that may not have been on the table in the current form at the time the statute was enacted. and agencies have a variety of regulatory tools to act in the cases and some of them have given more credibility in the legal authority than others. can you kind of give get an administrative overview that sets us up? spinet administrative law in two minutes. >> think you. >> i was delighted to be invited and i thought i felt like an
outlier because there's all of this impressive substantive expertise and i am kind of a processed kind of gal. going with the administrative law. but in the general administrative state, agencies have a whole variety of things that they can do to confront what they perceive to be a problem from the very soft shawl though in her left eyebrow encouraging public-private partnerships to talk in roundtables or have voluntary standards. what are the end for seductions and other education that will lead to press setting provisions but the preferred route for most executive branch agencies and independent target of three
commissions is the old-fashioned wool making -- rule-making but says that it is thinking about doing and why, and opportunity for comment, public participation to help educate the agency and to think about things the agency may not have been thinking about and to get the buy-in that is often critical for subsequent compliance in the agency considered the comments of the final rule and it becomes effective 30 or 60 days thereafter. you may think that isn't quite the world in tax law where sometimes their temporary regulations that are issued in a simultaneously with a notice of proposed rulemaking then they
become final later or the whole issue of the return activity that we can come back to act some point with the. in the regulatory world of his respective only. there are certain provisions in the tax code however that while the final regulation to be made effective as of the date of the notice or even announcement if it has sufficient specificity and we can talk about those. the underlying proposition is that the more the process is given, the more deference the court will ultimately give and we saw this recently for those of you that are not lawyers and